Asia Pacific offer for DB lacks froth

By DITA DE BONI

Appraisers reporting to DB Group's independent directors have labelled "not fair" the 280c bid for company shares by 58.4 per cent major shareholder Asia Pacific Breweries.

Independent directors David Sadler and Sir Colin Maiden have advised shareholders to reject the offer from the Singapore-based company, whose major shareholder is Dutch brewer Heineken.

"We have given very careful consideration to the appraisal report and to the advice we have received from our advisers, Deutsche Bank. As a result we ... recommend that shareholders do not accept the offer," Mr Sadler said in a statement.

He told the Business Herald a "professional relationship" continued to exist between all parties, despite Asia Pacific indicating it would continue with plans to send out the 280c offer to shareholders.

Several analysts contacted by the Business Herald described as "unbelievable" the 319c to 361c price range given to DB shares by PricewaterhouseCoopers.

Asia Pacific was also less than convinced by the appraisal, saying in a statement it would not raise its 280c unconditional offer,which it reiterated was "substantially above the market price of DB Group shares."

PricewaterhouseCoopers reasoned that the market would re-rate the company "once the future structure of DB Group becomes more readily apparent and projected earnings materialise." DB shares had traded at an average price of 235c in the 12 months ahead of the Asia Pacific bid.

The valuation summary priced DB Breweries between $196.5 million and $221.4 million and Corbans Wines between $130.4 million and $146.7 million.

The report acknowledged DB Breweries would continue to face competitive pressures that would "constrain real earnings growth," and said: "It is more likely than not that DB Group's share price will fall below the bid price of $2.80 at least in the short term."

There was "very little prospect of any competing bid" and the "relatively illiquid" market for remaining shares in the company would possibly lock in other minority shareholders, it said.

The higher valuation of shares was largely due to an estimate of future earnings for the breweries division, based on a review of several international listed brewing companies.

After the past three years of restructuring, PricewaterhouseCoopers put pre-tax earnings for the division at $37.9 million for the upcoming year, and calculated future earnings using a multiple of between 9.8 and 12.1 times historical pre-tax earnings.

Paul Turnbull of Ord Minnett said multiples used in the report were "a little bit excessive" but said his valuations of the two main company assets were in line with the appraisers' estimations.

He said shareholders had not questioned the bid would be a success at 280c, but many thought they may be able to get a "top end" 300c for the shares.

Nathan Field of Credit Suisse First Boston said while analysts had perhaps overestimated future corporate costs and undervalued the value to be extracted from winding up Allied Liquor and the cost of property assets, the bid was still "above everyone's expectations."

But he said shareholders could "wait and see - they know DB is worth $3-plus but they also know Asia Pacific is the only game in town."

Gavan Hatfield of SG Corporate Finance Advisory said the $3.19-$3.61 appraisal was "more theoretical than grounded in a market reality."

He said he did not want to get into a slanging match with DB, but said a consensus from the major shareholders and analysts he had talked to was that the share price was "very reasonable."

None of them had the company as a buy, with most recommending a hold or sell before the bid, he said.

But New Zealand's largest private shareholder, Ian Louisson, who owns 700,000 shares in DB, said yesterday Asia Pacific's $2.80 offer was "not acceptable" and said he would hold on to his shareholding until at least $3.15 was offered.

"There's no hurry - no reason to worry, the dividend's been paid out," he said.

"The company's doing all right. It may not maintain its dividend in the future but basically it's a good investment."

News of the appraisal report pushed DB shares up 8c yesterday to close at 280c.